Smart, Sustainable, and Self-Reliant: Tariffs Are Creating Localized and Modular Smart Building Product Lines to Navigate the Uncertainty Ahead

The smart building industry is no stranger to fluctuating material prices and supply chain disruption, thriving on an interconnected global network of resource flows to minimize cost. U.S. tariffs of up to 25% on imports are having a cascading effect on the global economy, increasing raw material costs and creating short-term challenges. On the hardware side, for instance, steel and aluminum are on the tariff hit list, a critical structural material for prefabricated structures, doors & windows, sheet piling, and hollow sections. Connected device components and software companies are bracing for costs increases of up to 40%, due to international dependency, in addition to inflation and hardware improvements due to integrating AI. In the long term, solution designers must not only design for the product, but strategically navigate a diversified supply chain and material sourcing strategy.   

The tariffs are leveling the playing field, encouraging localized sourcing and driving demand for domestic products. The smart building ecosystem is a competitive marketplace with the United States being the largest installed base of innovative smart building technology and market share. The current implications of tariffs on the local and global supply chain are listed below:

• Global Relevance: The United States currently lacks scale and manufacturing infrastructure to meet the demand for device components at a competitive price. Countries without tariffs will become more attractive for innovation and investment, drawing investment and talent away from the United States. Uncertainty regarding the U.S. political landscape is creating opportunities for Europe and Asia to invest in Research and Development (R&D), secure long-term partnerships, and scale manufacturing.
• Stalled Innovation: Innovation is the foundation of the smart building industry, with solutions disrupting the marketplace with cutting-edge technology. Financial constraints to meet current business commitments will override R&D investment and new product launches, and directly impact advances in energy efficiency, sustainability, and global decarbonization goals.
• Panic Purchases: Domestic manufacturers are ramping up production to fill the gap, pushing back on large orders and reverting to engaging long-term sustainable partnerships and pricing. Unlike during COVID-19, there is no shortage of material, but an additional cost on imports. Over the long term, it’s an opportunity for the domestic ecosystem to create a resilient partner ecosystem to compete globally.
• Price Rise: Contractors are facing the dilemma of reducing profit margins or powering through and passing the costs further down the supply chain to the developers and building occupants. As a price increase is inevitable in the short term, stockpiling inventory softens the blow, buying time to avoid delays and maintaining brand reputation. 

The construction and smart building industry often operates on long-term contracts, so sudden shifts create financial strain on all stakeholders involved. Despite current headwinds, the demand drivers for the smart building industry are powering on, namely digitalizing built portfolios, labor shortages, increasing energy costs, and pressing environmental regulations. Listed below are recommendations for proactive measures to stay ahead of the curve:

• The biggest opportunity presented by the tariffs is localizing the supply chain. They are often more reliable and reduce a business’ carbon footprint along the value chain. Implementing product take-back and repair schemes reduces embodied carbon, recovering highly tariffed raw materials and extending product lifecycle.
• Technology providers will need to streamline product portfolios to stay relevant and cost-effective, ensuring seamless and open integration, and they need to support third-party building automation.
• Energy efficiency will be a key driver of innovation and will accelerate the adoption of AI to drive controls to optimize operation schedules, predict maintenance, and support remote monitoring.
• On a product level, advancements in wireless and battery-free solutions and material substitution should be explored to reduce international dependency. Additionally, on the design front, modular design enables flexibility, and optimizes cost, assembly, compliance, and service to keep up in an evolving landscape.
• As solution providers negotiate their supply chains with new local suppliers or tariff-free countries, companies need to refocus on long-term partnerships to secure stable pricing as a cost-effective measure.

Forward-looking companies are laying the foundation for self-reliant, digitized, and resilient supply chains with a risk-based agile strategy to weather unpredictable times.

Gain Clarity In Uncertain Times 

Explore more ABI Research Analyst Insights on how the U.S. tariffs will potentially impact technology markets and the next steps for stakeholders by downloading the free whitepaper, Navigating Tariff Turbulence in the Technology Sector.